E-commerce: warehouse demand falls by 71%

The e-commerce sector’s demand for warehousing and logistics fell 71% in FY23 to 3.4 million square feet.

E-commerce companies had selected 11.6 million square feet of warehouse space in FY22 to deal with the surge in demand during the Covid pandemic.

Real estate consultancy Knight Frank India said in its 2023 India Warehousing Report that this drop in demand from e-commerce was mainly due to third party logistics (3PL), manufacturing and retail.

Demand from 3PL companies grew 34% in FY23 to 20.2 million square feet, accounting for a historic 39% share of warehouse and logistics space. Most of the space was taken up in Mumbai, followed by NCR, according to a Knight Frank report. The consultancy said it would take e-commerce companies another nine to 15 months to utilize the excess capacity.

Demand from 3PL companies indicated an increasing focus on outsourcing logistics to warehouse operators as the industry sought flexibility and scalability with options to scale up or down in line with market demand, said Shishir Baijal, Chairman and Managing Director of Knight Frank India.

The growth is not limited to the top eight markets, but has also extended to secondary markets, aided by improved infrastructure and expansion of e-commerce, and driven by the hub-and-spoke logistics model, Baijal said.

This is just the tip of the iceberg as the growth of the storage industry has just started and there is potential for storage REITs in the country, Baijal said. He forecast robust demand for FY24 with continued strong demand momentum.

Total demand for warehouse space surpassed the previous peak in FY23, reaching 51.3 million square feet, up 0.1% year over year. Demand for warehousing and logistics has grown beyond the eight largest cities (Mumbai, NCR, Bengaluru, Pune, Hyderabad, Chennai, Ahmedabad and Kolkata).

In line with these trends, Knight Frank has expanded coverage to 13 secondary markets, which accounted for approximately 13.75 million square feet of inventory transactions and grew 15% year over year.

Lucknow, Guwahati, Coimbatore, Vishakhapatnam, Indore, Jaipur, Vadodara, Surat, Vapi, Patna, Ludhiana, Ambala-Rajapura and Bhubaneshwar emerged as major warehousing markets, with demand for warehousing and logistics space being driven by 3PL, manufacturing and retail.

Secondary markets’ share of total transactions recorded in the country has increased from just 11% in FY2019 to 21% in FY2023.

Warehouse rents rose 3-8% year over year in FY23 in seven of the eight major markets, according to a study by Knight Frank. An estimated 13% of the transaction volume in fiscal 2023 was for industrial use and is likely to gain further importance this year.

Due to the inflation tendencies in steel and cement, the supply of space remained subdued. Strong transaction volumes combined with comparatively lower supply in FY23 had reduced the vacancy rate to 12.2% over the year. The vacancy rate in the main markets of Mumbai, NCR, Bengaluru and Pune has fallen significantly compared to the previous year.

India’s eight major markets had an estimated inventory of 412 million square feet at the end of FY2023.

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